The Marketplace Fairness Act before Congress right now will create sweeping change in the way that Internet sellers do business.
The Act requires that almost all Internet sellers will be required to collect and remit sales tax on items they sell over the Internet. The sales tax will be remitted to the state where the product is delivered.
As the Act stands now, Internet sellers with less than $1 million in annual sales would be exempt, but it's not clear how this will be monitored or verified.
In order to participate in this program, states would be compelled to simplify their sales tax rules, and would be required to provide free software enabling out-of-state vendors to comply.
Arguments in favor of the Act
It forces equal treatment of all sellers within the state, whether they operate from a physical retail store, or over the Internet.
It is hoped that this will reduce the growing phenomenon of buyers looking at products in retail stores and then making their actual purchase from an online vendor. This behavior is believed to cost local retailers a lot of lost business and states a lot of revenue.
Arguments against the Act
The Act could add legal complexity beyond what many small businesses can handle. They will be required to register with every state to which they sell product, and enter in the tax reporting mechanisms existent in each state that features a sales tax. The collection, reporting, and remittance of tax, and filing of tax reports, would be a heavy burden on small sellers. This will also open up a lot of small business to sales tax audits from different states.
A fair fight on fairness? Heavyweights for and against
The Act has gathered support from both sides of the aisle. Interestingly enough, Amazon is in favor of the bill. It would reduce competition, and Amazon has the resources to deal with the requirements. EBay, on the other hand, is against the Act, arguing that a small business should be defined as having fewer than 50 employees (consistent with the Affordable Care Act definition) or less than $30 million in annual sales (the Small Business Administration definition).
BerryDunn will continue to track the Act before Congress, and we will provide updated analysis about how it might affect your business.
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